Market watch: Super rich will still dodge stamp duty

Vince Cable, the Business Secretary, made stamp duty an election issue,
estimating that the legal dodge cost the Exchequer £750million in lost revenues

How difficult is it to clamp down on rich stamp duty dodgers, who are often from overseas, keeping a virtually unused investment bolthole in London (and making a thoroughly unwelcome contribution to house price inflation as well)?

Extremely difficult, it would appear.

The Budget addressed a few minor stamp duty dodges favoured by professional developers – the subsales rules, the alternative finance reliefs and the rules for exchanges of land – but did nothing to stop the rich buying their houses through companies.

When it is time to move on, they sell the company rather than re-register the property at the Land Registry and so avoid getting hit for five per cent stamp duty (which comes in for all properties over £1million from April 6).

Vince Cable, the Business Secretary, made this an election issue, estimating that the legal dodge cost the Exchequer, that's us by the way, £750million in lost revenues.

'It is disappointing that the Government still has not addressed this loophole,' says Lord Oakeshott, a senior Lib Dem who quit as a Treasury spokesman last month after describing government action over bankers' bonuses as 'pitiful'.

The only deterrent appears to be public opinion. Last July I revealed that Nick and Christian Candy, the high-profile salesmen marketing ritzy One Hyde Park in Central London, had been developing just such schemes for its international buyers which 'could provide One Hyde Park purchasers with a stamp duty saving'.

In the event, these stamp duty-saving schemes were abandoned.

While first-time buyers will have to wait until the autumn to learn whether their up to £250,000 stamp duty holiday is to be extended, the Government has been more obliging to City institutions. On bulk purchases of property, the buyer will pay stamp duty on the mean average price of a property rather than on the aggregate total, as at present. This means that if a life insurance group buys a £6million block of 30 flats where the average price is £200,000, it will pay stamp duty at one per cent rather than five per cent. This sweetener is to encourage big institutions to invest in the private rental sector.

The First Buy scheme – a rereheated version of Labour's Homebuy scheme – is a piece of tiresome micromanagement that governments should stop attempting. This is how it works: if you want to buy a new-build property, you only need to pay a five per cent deposit with the scheme giving you a lowinterest loan – actually, no interest for the first five years – for 20 per cent of the purchase price. You borrow the remaining 75 per cent with a normal mortgage. In total, £250million is being made available for this headline grabbing scheme, although it will help only 10,000 buyers. It will be interesting to see how many lenders offer mortgages, and at what rate. I would be tempted to give the scheme a miss anyway. Plenty who took advantage of the Homebuy scheme are now in flats worth considerably less than the price paid for them. With this cumbersome financing buyers are hardly in a position of strength to hammer developers on price. As big name lenders C&G, Halifax, HSBC, Nat West, and Santander will all now lend to first-timers with ten per cent deposits, a smarter move would be to save up and then negotiate hard on an older property where prices are less vulnerable to falls.